Once the province of consulting firms and interim-executive placement firms, the outsourcing business for healthcare information technology is picking up an armada of relative newcomers trying to harness the winds of change.
"Since outsourcing has become a buzzword, everybody's using it to describe their services," said Peter Marsh, a healthcare consultant with JDA, a San Francisco consulting firm that supplies outsourcing of information systems management as part of its business.
The lure of business is evident in the decisions of two multibillion-dollar information service giants, Integrated Systems Solutions Corp. and Alltel Corp., to gear up for outsourcing of clinical and financial information services to emerging health networks.
Alltel, a Little Rock, Ark.-based telecommunications company, two years ago began to build an outsourcing capacity in healthcare around its purchase of TDS Health Care Systems Corp.'s line of clinical and financial software for hospitals.
The assets of TDS were organized into a healthcare division within Alltel Information Services, a subsidiary that accounted for about $860 million of Alltel Corp.'s 1994 revenues of $2.96 billion.
The information services unit derives 80% of its revenues from the outsourcing business in the telecommunications, financial services, mortgage banking and healthcare industries.
Within the healthcare division, which contributed about a tenth of the information services unit's total revenues, only about 25% of revenues currently come from outsourcing. But the division's strategy is to reach a 50-50 split between outsourcing and outright sales of healthcare products in five years.
One of its more well-heeled competitors will be ISSC, a White Plains, N.Y.-based operations management subsidiary of IBM Corp. that was formed in 1991. In 1994 alone, the unit signed up new business worth $5 billion in North America, including such clients as Amtrak and Air Canada.
Within healthcare, ISSC has concentrated on managed-care services, including a 10-year, $400 million outsourcing contract with Blue Cross and Blue Shield of New Jersey as well as other development projects to set up the Blues company for managed-care business.
The New Jersey Blues' current proportion is 75% indemnity and 25% managed care, and the company wants to reverse that during the next three years, said Kevin Murray, director of information services.
Other big outsourcing players, such as Electronic Data Systems Corp., are going after large healthcare insurers and management companies but aren't zeroing in on local healthcare delivery.
The strategy at EDS is to concentrate on large and complex organizations rather than individual delivery networks, spokeswoman Jeriann Crawford said.
EDS has signed to manage data processing for OrNda HealthCorp, a national hospital management company based in Nashville, Tenn. But the nature of that project differs from the locally oriented integration of diverse providers that Alltel and ISSC are focusing on. The EDS project involves managing a network of nearly 20 facilities in eight states.
ISSC has established a healthcare clinical systems unit to offer services focused on managing the integration of health networks and providing skills and computerization for the shift to a clinical rather than billing emphasis, said Mario Naranjo, director of clinical systems.
Though some health network executives are uneasy about outsourcing key clinical functions, such as test results, in addition to more routine data processing, Alltel and ISSC are banking on attracting clinical business.
Alltel said it must meet at least 70% of the core computer-application needs of customers to establish a reputation as a full-service provider of information technology solutions to healthcare facilities and delivery systems.
The typical arrangement calls for Alltel to define specific tasks to be completed in a five-year contract period, set up a fee structure based on performance objectives, and develop an on-site presence that includes hiring all information-systems employees, said Michael Montgomery, president of Alltel's healthcare division.
He said the company also feels "an obligation" to help clients get to the point of taking over the system themselves at the end of the contract period, including transferring a perpetual license for computer products. But at the same time, Alltel will try to document its worth at the end of the contract in hopes the client will see good reasons to keep the company on, Montgomery said.
Part of the lure for the health networks is having a fixed fee negotiated for the life of the contract-a sizable but predictable investment. "It takes a lot of risk out of the equation for five years," Montgomery said.
ISSC also bases its contracts on meeting a set of performance objectives for a fixed fee, Naranjo said. Such objectives make it in ISSC's best interests to offer the most current technology to bring down its own costs, and the client doesn't have to commit to a hardware purchase that may be obsolete in a year or two, before it can be fully depreciated, he said.